SURVEY REPORTSEPTEMBER 2022
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Life Insurers: Climate Risk Modeling in the Risk
Assessment Process
How prepared is the industry, and what are the long-term considerations?
Foreword
In every modern insurance regulatory framework there is one common element: the own risk
and solvency assessment (ORSA). Unusually for regulation, the ORSA is appreciated byinsurers as much as their supervisors. Other elements of regulation, such as the solvency
capital requirement and reporting, are often seen as a burden by insurers, but the ORSA
represents the practical implementation of risk management that sits at the heart of theinsurance business model and the regulation of the sector.
The ORSA is a document produced by insurers exclusively for their supervisors, and is usedinternally to communicate risk across the business. There are few guidelines for how to carryout the ORSA, but most insurers will admit the process for producing the report is far more
important than the report itself, as it forces them to look carefully at the risks facing theirorganization and consider the implications, taking a forward-looking view that is relevant forbusiness planning.
Among the multitude of risks insurers must deal with, climate change is becoming
increasingly important. As the effects on our natural environment become more pronounced,
and as the world repositions itself for a net-zero emissions future, insurers need to plan andrespond appropriately.
But how? It is still early days in the development of potential climate scenarios, modeling andmeasurement of climate exposures. There are a wide variety of approaches in the market, andwhile supervisors are demanding insurers consider climate and have produced some guidance,
there is a desire on both sides that it remains the “own” of the insurers and that prescriptive
approaches are avoided.
Moody’s Analytics survey and report therefore comes at a perfect time for an industry thathas been thinking hard about climate risk and developing individual approaches, but is curious
to understand the thoughts of others.
The report also represents a key milestone in what will no doubt be a long journey tounderstand climate risk and put the insurance business on a sustainable pathway.
Christopher Cundy, Editor, InsuranceERM

For purposes of this document, the entity submitting this proposal is Moody’s Analytics, Inc. (“Moody’s”). Notwithstanding anything in the document to the contrary, by submitting this proposal:(a) Moody’s is not agreeing to any legal or contractual terms, conditions, or obligations in connection with this project (including any which may be contained in a “Standard Contract” or similar
document), (b) Moody’s expressly reserves the right to fully and freely negotiate any and all terms of a contract (including all relevant legal terms) with the proposal requestor in the event that
Moody’s is selected to carry out the project, and (c) Moody’s expressly reserves the right not to provide the services bid upon hereunder, if the parties are unable to come to agreement on all
relevant contractual and legal terms and conditions after good faith negotiation.

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Table of Contents
Foreword

1

Background
Executive summary
Key takeaways

3
4
5

The Survey
Description
Top priorities for 2022
What future climate risk modeling requirements do insurers have?
Drivers and sources for climate scenario analysis
Current approach to climate scenarios
Current ability to capture climate risk
Definition of short-, medium-, and long-term horizon
Current quality and integration of climate modeling

7
7
8
9
12
14
16
18
19

Moody’s Analytics Climate Pathway Scenario Service

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Background
Climate risk affects many industries in different and increasingly complex ways. There is a lot of modeling uncertainty, bothscientific and socio-economic. This high uncertainty, and potential materiality has resulted in stakeholder and regulator pressure
to understand the impacts on business, consumers, and society. Many bodies have begun to address climate risk and other related
challenges, from local regulators to international organizations, such as the International Sustainability Standards Board (ISSB).
The ISSB, which is part of the International Financial Reporting Standards (IFRS) Foundation, was established at COP26 to develop
a comprehensive global baseline of sustainability disclosures for the capital markets. The IFRS bases its recommendations on the
Task Force on Climate-Related Financial Disclosures (TCFD) and offers guidelines on best practice. It is important to note thatthese are not requirements and that the actual enforcement lies with local regulators in each jurisdiction.
One of the main challenges that climate risk poses to the financial sector is calculating how to develop a strong understanding of
the evolution of assets in the long term. Anyone with a role related to asset evolution, from investment to risk teams, must stay
up to date with the relevant standards or requirements. Climate risk is complex and there are several considerations to factor into
its modeling:»

It has different dimensions: transition and physical risk»

The uncertainty surrounding it. Climate science is relatively new, so there are few data points that can indicate to us the likely
climate effects of governmental policies. It is also hard to predict the effect of climate change on populaces – what will theimpact be on pay and employment? How will fertility and mortality rates be affected?

Although difficult to answer, the insurance sector can no longer ignore these questions, which is why between the rest of 2022 andinto 2023, some regulators are focusing more on this challenge. Focus varies by region. There are places where other important
challenges are yet to be solved, and therefore overtake climate modeling in the list of priorities.
The Own Risk and Solvency Assessment (ORSA) encourages insurers to understand the risks involved with running their business,from both a qualitative and a quantitative perspective. Unlike other regulatory requirements, the ORSA is not published. Therefore
insurers are struggling to understand how the rest of the market is planning to include climate risk in their process. A European
Insurance and Occupational Pensions Authority paper from August 2022 1 states: “Climate change risk can translate into physicaland transition risk, and can have material impact on the undertakings. Given the potential impact, undertakings are expected tointegrate climate change risks into their ORSA by describing and assessing the impact of these risks on their risk profile.” Although it isaccepted that climate risk will have to be included in the ORSA, it is unclear how much of it will be qualitative, how muchquantitative, and the timelines for embedding the risk. One of the aims of this survey was to offer some clarity.
Firms should now also be thinking about climate from a strategic perspective. It is useful to follow the “Four Rs” framework:
Regulation, Reputational Risk, Risk Management, and Revenue Streams. Regulation is an important catalyst for insurers, and it is
the main focus of our survey, along with Risk Management, which is the function in charge of the ORSA. It is worth noting that risk
management has a broader meaning in finance. It enables a consistent view of risk across investment, capital, liquidity,
underwriting, and product design. The remaining two “Rs” should also be at the center of strategic considerations. Reputational
Risk ensures that the company is operating in line with net-zero and sustainability strategies. Those managing this risk also ensurethat due diligence is conducted on counterparties. Finally, Revenue Stream: climate is a risk, but it also presents an opportunity toachieve competitive advantage through the impact on underwriting and investment returns.

1

https://www.eiopa.europa.eu/document-library/other-documents/application-guidance-climate-change-materiality-assessments-and_en

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Executive summary
We open this report with a quote from an interview with a CRO about their view on embedding climate risk in the insurance risk
processes:“Risk management is more about evolution than revolution”
This survey has confirmed that the industry is at the beginning of a journey to include climate risk in its analysis for both strategic
and regulatory purposes. It will take time to adopt strong climate modeling methodology, and even longer to gain the confidence
necessary to act on the numbers produced. While there is much desire and intent to start this journey, there is a sense of
confusion driven by the many challenges that climate modeling presents to risk teams, as well as a lack of clarity, and increasingpressure from a regulatory perspective. One survey respondent said: “There is far too much noise that ICs must do something without
any practical guidance or consensus on what that means.” It is worth noting that in countries such as the UK, where regulators havebeen quick to address the situation and are more vocal, insurers are more advanced in their adoption of climate risk into theirprocesses.
This survey report takes a snapshot of the industry’s progress towards the inclusion of climate risk in the ORSA and other risk
assessment processes. It explores what insurers would like climate modeling to consist of in the future, and the requirements
necessary for this to happen. We hope that this report will help set the direction for your journey.

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Key takeaways
Drivers to perform climate scenario analysis

The main drivers for life insurers to perform climate scenario analysis are disclosure (TCFD) and regulatory needs. Shareholder orinvestor pressure only seems to have significant weighting in the APAC region, where it was ranked second to TCFD. Performing
climate scenario analysis to influence company strategy is mainly prevalent in the UK, and partially in the rest of Europe, while lessimportant in North America and APAC.
Modeling can’t be a black box, but insurers struggle to defend their modeling assumptions

Many respondents indicate that they are struggling to understand and defend their climate risk models. However, we know thatmodeling using black box solutions will not be sufficient. Regulators and management would be uncomfortable with decisionmaking based on assumptions that they and the teams producing the analysis do not fully understand. Since performing this sortof analysis is a top priority for 2022, during the coming months we expect to see significant progress in the ability to explain themethodology used to assess climate risk.
Qualitative vs quantitative analysis

Most insurers are producing qualitative descriptions in their ORSA. It is unclear whether a qualitative description will be enough tosatisfy regulatory requirements for this year. Either way, quantitative analysis is becoming more popular because of increasing
regulatory demand and decision-making pressures. Interestingly, the respondents from insurers who are currently able to perform
quantitative analysis are typically the ones who are also able to build a climate-aware strategy.
Transition risk is newer and not sufficiently captured yet

Transition risk is about potential permanent shifts driven by changes in policies, technology, carbon pricing and regulations, andmarket behavior. This risk is most relevant to life insurers, as it directly impacts their assets. However, due to its complexity,
insurers are struggling to capture it effectively. As it is also a newer risk, the industry is still in the learning phase of how to model itcorrectly.
Insurers are still wedded to traditional time horizon definitions

When asked about short-, medium-, and long-term horizon definitions, respondents still see them as the same as for traditionalrisks. Regulators around the globe are asking for longer time horizons for climate; however, it looks like the industry hasn’t adopted
them yet.
Industry bodies are expected to be the main source of scenarios

Industry bodies are specialized on this topic. While the industry is still trying to understand evolving best practice, respondents
indicate that they will be relying on them, as an intuitive source. Regulators ranked as the second most popular source, followedby third-party providers, which currently rank higher than internally developed expertise.
UK and large life insurers are more advanced in their adoption and planning

The survey results suggest that the UK is the most advanced in its climate risk journey. As a global provider, we have seen many
firms in the UK adopting more sophisticated approaches to climate modeling and its impact on their business.
The respondents from life insurers with the highest value of assets under management (AUM) are also ahead of the smaller
insurers in the sophistication of their approach, allocating dedicated resources and integrating climate into decision-making. This isrelatively unsurprising, as bigger insurers generally have more resources to invest in this area, and are likely to face more pressure
from shareholders and regulators to keep on top of the latest topics and trends. Many are also members of entities such as the
Net-Zero Insurance Alliance, which are setting the pace.
The industry is still learning

The main theme of the verbatim comments in the survey is that the industry is still in the early stages of its journey to assessclimate risk. “We have not started assessing climate scenarios yet,” “The company is just embarking on the ESG journey so much is stillin infancy stage,” “Not much of an issue for us; we will adapt as needed.” Moreover, understanding evolving industry best practice has
been ranked as the top priority for insurers in 2022.

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5This is perhaps the most important thing we learned from this survey, and it will hopefully reassure those who are still familiarizingthemselves with climate risk. If you haven’t refined your approach yet, you are not alone. However, we do note that there is muchinterest in starting to tackle climate risk requirements.
The top priorities for 2022 are:1.

Accessing standardized scenarios

2.

Being able to perform climate-based sensitivities and base decision-making on them

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The Survey
Description
Between April and May 2022, Moody’s Analytics ran a global survey to understand how life insurance companies are incorporatingclimate risk in the scenario analysis necessary for the ORSA or regional equivalent. The survey was completed by 67 life insurers,
relatively equally distributed in terms of seniority, company size, and geographic location, as shown below.
Figure 1

Job Role
Actuarial Analyst
3%
Investment Analyst / Manager
5%

C-Level (CRO, CAO, CFO, CEO,CSO, CUO, CIO etc.)
27%

Risk Analyst / Manager
33%

Head of Risk
13%
Actuary
19%

Figure 2

Company Size

Figure 3

Geographic Location

APAC
30%

Europe23%

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North America
28%

UK
19%

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Top priorities for 2022
“Implementing a more robust climate risk framework and TCFD are high priorities in 2022”
Figure 4

In relation to climate scenarios, what are your top three current priorities?

75%

50%

25%

0%
Including sector
modeling

Accessingstandardized climate
scenarios

Adopting bespoke
climate scenarios

Improving modeltransparency

Improving assumption Performing climatedisclosure
based sensitivities

Improving climateUnderstanding
based decisionevolving industry best
makingpractice

The top priority is to understand evolving industry best practice, which is a recurring theme. As best practice continues to develop,
life insurers are at different stages of the journey to fully incorporate climate scenarios into their risk assessment. Interestingly, thisis the top priority in each geographic area, except for the APAC region, where it ranks second, after having access to standardized
scenarios.
The second priority is to be able to perform climate-based sensitivities, most likely
driven by regulation or the need for internal decision-making. The ability to
improve climate-based decision-making also ranks highly. Together, these indicatethat a priority for 2022 is having a solid understanding of what would happen to
the business under different climate scenarios.

Climate sensitivities: climate-aware
what-if analyses, allowing insurers tounderstand the impact of climate risk on
different aspects of their business, forexample on the balance sheet and capital
position.

The third priority is the ability to access standardized scenarios. Access to such
scenarios is likely to be important for companies who want to produce
quantitative analysis without developing deep expertise to model scenarios internally and justify them. This observation is mostcommon among smaller life insurers or those based in the APAC region.

Combined with the low number of responses for “sector modeling” as a priority in 2022, the findings indicate that the industry as
a whole is not currently looking for highly customizable and sophisticated climate scenario solutions. At this early stage of theirmaturity, respondents prefer an approach that is simple to understand and to use. We expect sector modeling to become more
important as the market matures. Some climate scenarios have little to no impact at an economy level, although they do impact
sectors. For example, if one sector overperforms and one underperforms, leaving the levels of GDP unchanged. We expect insurers’
capabilities to evolve to be able to model for these dynamics.
The request for standardized scenarios is stronger in those areas (by geography and by size) where there appears to be less appetite
to base decisions on climate modeling. A round of one-to-one interviews that Moody’s Analytics conducted alongside the survey
suggested that the larger insurers are building climate expertise internally and plan to have it established in the next two to three
years. However, the priority in 2022 is still to access something simple to adopt, understand, and communicate.
Reviewing the responses from a seniority perspective, the C-levels’ top three priorities are the same. It looks like there is a goodalignment between different job roles and seniorities on the immediate needs and priorities to be addressed.

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What future climate risk modeling requirements do insurers have?
Key takeaway: the requirement from the market appears to be top-down, deterministic scenarios thattranslate temperature and carbon emissions into financial variables.
This section of the survey elaborates on the top priorities identified earlier, to explore what respondents think will be important forclimate risk modeling in the future.
The first two questions compare the importance of top-down analysis against a bottom-up approach.

Top-down approach: uses macroeconomic scenarios to infer
what would happen to market variables, and therefore to
the company.
Bottom-up approach: looks at the impact of the selectedclimate scenario for each of the assets and liabilities held by
the company (in a line-by-line approach) and aggregatesthem to infer the impact on the whole company.

Almost 80% agree or strongly agree that top-down scenarios
are important for modeling climate risk. Some 18% did notknow, leaving only a small minority (2%) that did not consider a
top-down approach to be important. On the other hand, only
45% of respondents agree that a bottom-up approach isimportant, with 37% saying they disagree and 18% saying they
do not know. It is clear that a top-down approach is currently
favored and this remains true irrespective of the size of thecompany, its location or seniority of the person taking thesurvey.

Most respondents (87%) think that it is important to have access to standardized climate scenarios. Only 12% disagree and one
respondent did not know. Combined with the popularity of these in the priorities question, it appears standardized scenarios are
currently a key requirement for life insurers.
Over 80% of people surveyed agree or strongly agree that performing climate-based sensitivities is important, reinforcing that thisis a top priority for 2022.

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Most respondents (80%) agree that translating climate and temperature
pathways into financial variables is important (15% do not know, and lessthan 5% disagree). Most (67%) also agree that having deterministic
scenarios is crucial to assess climate risk (15% disagree and 18% do notknow). Interestingly, the story changes for stochastic scenarios. Around halfof the respondents think that these are important to have, while 34% say it
is not important and the remaining 16% do not know. The results of this setof questions reinforce the conclusion that simple approaches are moredesirable, at least for now. The 1:1 interviews confirmed that climate-aware
stochastic scenarios might be of interest in the future, but it is unrealisticthat they will be considered in the short term.

Sector modeling refers to (climate aware) calibrationand projection of asset returns at a sector level (forexample, NACE Classification rather than at an
economy level.

Deterministic vs stochastic scenarios: in a
deterministic approach everything develops as afunction of time; in stochastic scenarios, thesame variables are subjected to random shocks.
Stochastic scenarios give a better valuation of
products and instruments with optionality; thisbetter valuation comes at a greater cost interms of modeling complexity.

The results below show that around 70% of respondents think that
sector modeling is important to assess climate risk for both
corporate bonds and equities. In the first section, sector modeling
was found not to be a top priority for 2022. This draws theconclusion that while sector modeling is deemed important, it is noturgent that it is tackled this year.

The final question of this section sought to understand any urgency in addressing climate risk in the 2022 risk assessments. We
saw quite an even distribution of responses, skewed towards the agreement that it is a priority this year.

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Drivers and sources for climate scenario analysis
Key takeaway: regulators are the primary driver to perform climate scenario analysis.
Figure 5

What is driving the need to perform climate scenario analysis? (Select up to two.)

60%

50%

40%

30%

20%

10%

0%
The Task Force on Climate-Related
Financial Disclosures (TCFD)

The regulator

To influence our strategy

Shareholder or investor pressure

Other - please explain

The main sources driving respondents to perform climate scenario analysis are the regulator, followed by the TCFD. There aresome notable variations when these top-line results are analyzed by location:»

Shareholder or investor pressures seem to be less impactful around the globe except for the APAC region, where they are
ranked second after TCFD»

In the UK, a strong driver to perform climate scenario analysis is to influence company strategy. It is the only region in which
this ranks comparably to TCFD and the regulator. In the rest of Europe, TCFD ranks highest, followed by the regulator

Figure 6

Who is responsible for climate scenario analysis in your company? (Select all that apply.)

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Chief Actuary

Chief Risk Officer

Chief Executive
Officer

Chief Financial Officer Chief Sustainability
Officer

Chief Investment
Officer

Chief Underwriting Other - please specify
Officer

The Chief Risk Officer is the main person responsible for climate scenario analysis by a significant margin. This is not surprising,
given that the focus of the survey was the risk assessment process, which falls naturally under their purview. Interestingly, in the
North America and APAC regions, around 40% of the responses indicated that the Chief Investment Officer also has some
responsibility for climate scenario analysis. In North America, around 30% selected Chief Actuary and Chief Sustainability Officers.

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Figure 7

Which of these are likely to be your key sources for climate scenarios and models? (Select up to two.)

60%

50%

40%

30%

20%

10%

0%
Derived internally

External consultants / vendors

Industry bodies (e.g. NGFS,
IPCC…)

Regulators

Other - please specify

Industry bodies rank highest for key sources of scenarios, which makes
sense since many of these are dedicated to supporting the transition
to a sustainable economy. The life insurance industry, like manyothers, is still trying to understand evolving best practice, and industry
bodies have an important role to play. Almost half of those surveyed
also indicated that they will rely directly on the regulator. While
applying pressure to produce these analyses, regulators are also
supporting insurers with resources to assist them. Some regulators,
however, have stated that they will eventually switch to supervising,which is when they expect insurers to meet their requirements on climate modeling alone. External consultants and vendors
ranked higher than internal sources of expertise, although this varies between segments. Respondents from larger life insurers($100b-300b AUM) favor internal expertise above external consultants and vendors. This is most likely due to large companies
having enough budget to develop their own resources. Among the respondents from the largest insurers (>$300b AUM) the
opposite is true. One potential explanation, subject to further market verification, is that these very large players have such asignificant number of entities around the globe that they prefer to rely on external providers that have a more standardized
approach.
Network for Greening the Financial System (NGFS):
a group of 66 central banks and supervisors and 13
observers committed to sharing best practices,
contributing to the development of climate andenvironment‑related risk management in the financial
sector, and mobilizing mainstream finance to support
the transition towards a sustainable economy.

These general trends are the same by location, except in North America, where internal sources rank slightly higher than external
providers. This might be explained by differences (again, subject to further market verification) in company size, cultural nuances,or differences in the market offering from external providers.

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Current approach to climate scenarios
Key takeaway: qualitative descriptions are more common, with only the bigger insurers adopting quantitative
approaches and including climate risk in their strategy.
There is an even split on how influential climate analysis is to company strategy. Of our respondents, 45% think climate is alreadyinfluencing their strategy, 49% disagree, and the remaining 6% do not know. This top-line finding masks the fact that almost all(17 out of 20) of the respondents from the large companies (>$100b AUM) agree with this statement, while the smaller
companies tend to disagree. This is unsurprising given that it is the larger insurers who tend to be at the forefront of adopting
climate modeling (and, historically, drove any complex modeling). There were no notable insights when segmenting this data by
location.

The results below indicate that qualitative descriptions for climate risk in the ORSA are far more popular than a quantitative
approach, which by its nature is more demanding. This highlights that most life insurers are still at an early stage in their journey
towards adopting a more rigorous approach. The difference is most notable in the APAC region, where only 15% of respondents
claim to have good quantitative descriptions of their climate risk exposure in the ORSA; the UK is most advanced, with thecorresponding number rising to 50% of people surveyed. North America and the rest of Europe are on the 30% mark.

Due to a close match in the respective numbers, from the results below we can infer that respondents who say they can produce
good quality quantitative scenarios also feel able to defend and disclose their assumptions. On the other hand, it looks as thoughfewer respondents adopting qualitative analysis in their ORSA can comfortably defend them. It seems that the effort toimplement quantitative analysis pays out by being able to better explain the results.

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Most respondents feel that the impact of climate change on their balance sheet at a sector level is unclear. Sector modeling adds
further complexity, and this result suggests that most insurers are currently unable to analyze to this level of detail. There areregional variations to this. The UK leads the way with around 50% who feel they have good clarity, followed by North America(33%). At the other end of the scale, the rest of Europe and the APAC region mostly disagree (67% and 72% respectively).

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Current ability to capture climate risk
Key takeaway: insurers’ ability to model climate risk is still poor.
The previous section focused on the approaches used to include climate risk in the risk assessment processes. This section analyzes
a similar question, from a slightly different angle. How robust is the modeling used? We have seen consistent evidence that theindustry is still in the early stages of this journey, and climate modeling is typically not sophisticated yet. However, this section
offers some interesting insights; for example, that insurers are capturing physical risk better than transition risk.
Climate scenarios have variables, such as temperature and carbon emissions, that change over time. Translating this change into
financial variables is not immediate or straightforward. This is highlighted below: fewer than a third of the respondents said thatthey can do this.

The second statement investigates the ability to decompose climate risk into the short, medium, and long term. Responses are
fairly evenly spread, with roughly equal numbers either agreeing or disagreeing. When asked if they can understand the long-term
impact of climate risk and if they can act on the analysis produced, most respondents felt that they could not.

Transition risks: permanent shifts driven by changes
in policy, technology, carbon pricing and regulations,and market behavior.
Physical risks: can be divided into acute and chronic.
» Acute physical risks: shocks from increased
numbers of extreme weather events» Chronic physical risks: long-term, systemic(not diversifiable) shifts

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The following two statements explore the ability of respondents tocapture transition and physical risk. Most feel that they are unable tocapture transition risk effectively. It is possible that insurers may find it
difficult to plan for and mitigate transition risks, given that they tend to
be politically led and implemented at short notice.
The results on physical risks are more evenly split, with 42% of the
respondents agreeing that they can capture these effectively.

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There is an even distribution between respondents who feel able to select and defend appropriate climate scenarios versus
respondents who feel they cannot. The industry seems to be looking for support and guidelines to produce the analysis, including
setting assumptions and how to understand them.

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Definition of short-, medium-, and long-term horizon
Key takeaway: insurers still need to adapt time horizons to the latest regulatory guidelines.
Climate is a new type of risk that differs in many ways from the traditional risk factors insurers are accustomed to. In this section,
we calibrate the definition of time horizons between respondents and the regulators. Typically, the short term is anything under
one year, the medium term is 1–10 years and the long term anything above 10 years. This definition varies depending on thespecific modeling challenge.
We then wanted to understand how climate modeling might change an insurers’ view on different time horizons. Our expectation
was to observe longer definitions for each of the short, medium, and long term, especially since the regulator’s view is that climate
risk impacts will become apparent over a longer term compared to traditional risks. What was observed instead is that
respondents are still fairly wedded to the traditional time horizons.
Short Term
Medium TermLong Term

Less than one year
Up to 15 years
15+ years

55% (45% indicated up to 5 years)
51 % (30% indicated up to 10 years, 19% up to 20 years)
81 % (19% indicated 20+ years)

It seems likely that this is another reflection of the fact that climate modeling is still in its infancy, and consideration of different
time horizons has not yet entered into the equation. This assumption appears to be validated by responses from UK and larger life
insurers who we have identified so far as the most advanced, as their results are more aligned with what we expected to see andmore closely aligned with guidance provided by regulators.
Short Term
Medium TermLong Term

Less than five years
5–20 years
20+ years

It looks like the rest of the industry has a lot of catching up to do to ensure they meet the new requirements of regulators, whichvary around the globe.

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Current quality and integration of climate modeling
Key takeaway: climate modeling needs to be integrated into existing processes.
The final section explores the current quality of climate modeling and its integration within an insurer’s processes and decisionmaking. The findings are shown all together since, for each of the statements, there is quite a uniform distribution of disagreement(roughly 15–25% agree, 60% disagree, and 20% do not know). The level of integration of data sources is poor, which reflects
general market comments that data is a real issue for life insurers and beyond. Integration is usually something that comes with amore advanced state and this is also true for the level of disclosure of models. The ability to perform sensitivities and makeclimate-informed decisions is also low despite this being among the top priorities for 2022 (see page 7). It will be interesting to see
how the answer to the same question change over the next year.
Most respondents feel that they do not have a clear plan to overcome material limitations. This must change as life insurers
develop their capabilities to address climate risk. From the discussions that Moody’s Analytics is having with the industry, it seems
many insurers are now in an information gathering stage, learning about what the industry is doing, what providers are offering,
and what regulators are asking for. It might be that clearer plans will emerge after insurers have moved beyond this discovery
phase.

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19

Moody’s Analytics Climate Pathway Scenario Service
Moody’s Analytics has developed the Climate Pathway Scenario Service to help insurers understand the financial impact ofdifferent possible climate scenarios. This solution takes input from any climate scenarios framework (for example, NGFS) able toprovide temperature paths and carbon emissions under different policies implemented by government. It leverages integrated
assessment models to get carbon prices and measure the transition and physical risk of the selected climate scenarios. The service
allows customers to translate the implied macroeconomic dynamics into financial variables and asset class returns.
The applications of these scenarios vary from ORSA to TCFD, from investment risk to strategic assets allocation, for life insurers(the focus of this survey) but also for P&C insurers, asset managers and pension funds.
Moody’s Analytics has over 15 years’ experience providing economic scenarios and has built climate expertise in the past few years
both internally and by acquiring Vigeo Eiris, 427, and RMS. Joint with the services of RMS, the Climate Pathways Scenario Service
allows insurers to assess the impact of climate change on both the asset and the liability side 2.
To read more about climate risk for insurers, please visit our website or get in touch to speak to our experts about your specificneeds.

2https://www.moodysanalytics.com/about-us/press-releases/2021-05-18-unipol-gruppo-selects-moodys-analytics-climate-pathway-scenario-service

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